November 2019

"You want a piece of this?" Why an employee share and option scheme can be a great idea

This article was originally published by Hire and Rental News, Nov 2019 page 15.

 

One of the key challenges for any employer is aligning the interests of staff with those of the business. A commonly overlooked but powerful mechanism for this is an employee share and option scheme, or ESOP for short.

ESOPs align employee and business goals by allowing staff to share, through part equity ownership, in the fruits of their labour. A well designed ESOP can also:

  • Motivate key employees to build sustainable long-term value;

  • Help retain key employees and corporate knowledge without impacting on working capital or cash;

  • Allow businesses to spend less on salaries;

  • Play a key part in attracting new and important talent;

  • Potentially be a tax efficient means of remuneration through tax concessions; and

  • Form part of succession planning.

Although ESOPs are mostly used by smaller start-ups where capital restraints are a challenge, many large companies, including public companies, also use them. They include:

  • Seven Group Holdings Limited, the ultimate holding company of Coates Hire.

  • Eclipx Group, who operate FleetPartners, FleetPlus and Eclipx Commercial.

  • Emeco Group, which also owns Matilda Equipment.

Recent legislative changes have also made ESOPs more appealing to a wider range of businesses.

ESOPs are typically custom built to match the company’s specific objectives. Before putting one together, it’s worth asking these questions:

  • What will I share through an ESOP?

  • Which employees should I invite to join the ESOP?

  • Who should I seek advice from before going ahead?

To get the most out of your ESOP, it is important to engage experienced advisors early to help you decide on what’s needed and plan the best course forward.

 

Authors: Eric Kwan and Greg Blewitt